Adjusted WACC Lowe runs an outdoor adventure company and wants to know what effect a tax change will have on his company's WACC Curry Lewis has the following financing pattern Equity 38% and cost of 18

Finance Dec 25, 2020

Adjusted WACC Lowe runs an outdoor adventure company and wants to know what effect a tax change will have on his company's WACC Curry Lewis has the following financing pattern Equity 38% and cost of 18.22 Preferred stock 19% and cost of 14 87 Debt 43% and cost of 12 8% before taxes What is the adjusted WACC for Lewis the tax rate in see See a. 40% What is the adjusted WACC for Lewis if the tax rate is 10% % (Round to two decimal places)

Expert Solution

First of all let's calculate after tax cost of debt

After tax cost of debt = Before tax cost of debt(1-tax rate)

= 12.8%(1-40%)

= 12.8%(0.6)

= 7.68%

Statement showing WACC

Particulars	Weight	Cost of capital	WACC
a	b	c =axb
Equity	38%	18.22%	6.92%
Pref shares	19%	14.87%	2.83%
Debt	43%	7.68%	3.30%
WACC			13.05%

Thus Adjusted WACC = 13.05%

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